RBI seeks views on draft framework for recognising Self-Regulatory Organisations for fintech Sector

FinTechs are significantly reshaping the landscape of financial services by streamlining processes, improving accessibility, and reducing costs, the central bank said, while issuing a draft framework for recognising Self-Regulatory Organisations for FinTech Sector (SRO-FT).

According to the draft, the Reserve Bank of India would seek applications for the SRO for the fintech industry on an as-needed basis, either for the overall sector or for specific sub-sectors. (File image)

The Reserve Bank of India on Monday proposed a framework for recognising Self-Regulatory Organisations (SROs) for fitech sector with an aim to achieve a balance between innovation and regulations, so as to protect interest of consumers.

FinTechs are significantly reshaping the landscape of financial services by streamlining processes, improving accessibility, and reducing costs, the central bank said, while issuing a draft framework for recognising Self-Regulatory Organisations for FinTech Sector (SRO-FT).

Achieving a healthy balance between facilitating innovation by the industry on the one hand, and meeting regulatory priorities in a manner that protects consumers and contains risk, on the other, is crucial to optimising the contribution of the FinTech sector, RBI said.

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The Reserve Bank of India recommended a framework for recognising Self-Regulatory Organisations (SROs) in the fintech industry on Monday, with the goal of striking a balance between innovation and regulations in order to protect consumers' interests.

As per the central bank, FinTechs are dramatically transforming the financial services landscape by streamlining processes, enhancing accessibility, and lowering costs. And it issued a draft framework for recognising Self-Regulatory Organisations for the FinTech Sector (SRO-FT).

Achieving a healthy balance between facilitating industry innovation on the one hand and satisfying regulatory priorities in a way that protects customers and limits risk on the other is critical to maximising the contribution of the FinTech sector, according to the RBI.

The RBI said in the circular, "FinTechs are significantly reshaping the landscape of financial services by streamlining processes, improving accessibility, and reducing costs. Achieving a healthy balance between facilitating innovation by the industry on the one hand, and meeting regulatory priorities in a manner that protects consumers and contains risk, on the other, is crucial to optimising the contribution of the FinTech sector."

"Self-regulation within the FinTech sector is a preferred approach for achieving the desired balance. Accordingly, the Reserve Bank has today placed on its website, a 'Draft framework for recognising Self-Regulatory Organisations (SRO) for FinTech Sector'. The draft framework lays down the characteristics of a FinTech SRO, and includes, inter-alia, functions, governance standards, etc," it added.

The draft on which comments and feedback have been sought through e-mail from stakeholders and members of the public by end February 2024, said that self-regulation within the finTech sector is a preferred approach for achieving the desired balance.

According to the draft, the Reserve Bank of India would seek applications for the SRO for the fintech industry on an as-needed basis, either for the overall sector or for specific sub-sectors.

The number of SRO-FTs that will be recognised will be determined by the number and character of applications received.

"The SRO-FT is expected to operate objectively, with credibility and responsibility under the oversight of the regulator.

"It should strive towards healthy and sustainable development of the FinTech sector and, if necessary, identify a glide path to a phased regulatory compliance," the draft said.

According to the draft, an SRO-FT, which would be a non-profit organisation, should be a true representative of the fintech industry, development-oriented, independent of influence, and a legitimate arbiter of disputes.

It should also encourage members to follow regulatory priorities and act as a repository of information.

"The applicant (for SRO-FT) should have sufficient net worth and demonstrate the capability of establishing the necessary infrastructure to fulfil the responsibilities of SRO-FT effectively, and consistently," the draft said.

Also, a SRO-FT should have a robust IT infrastructure and the ability to deploy technological solutions within a reasonable timeframe.

"The applicant SRO-FT should represent the FinTech sector with membership across entities of all size, stage and activities. If representation is inadequate at the time of application, the application should include a roadmap for achieving this within a reasonable timeline," it said.

According to the RBI's suggestion, failure to demonstrate or obtain comprehensive membership might result in rejection or revocation of recognition.

The draft stated that the SRO should advise its members' conduct, ensure that they adhere to industry norms, comply with relevant laws and regulations, and maintain high ethical standards.

"This involves establishing and enforcing guidelines for consumer protection, data security, data privacy, etc. The SRO-FT should play a crucial role in promoting responsible innovation by providing a framework that encourages responsible experimentation," the draft added.

Furthermore, the SRO-FT should build a structure for grievance redressal and conflict settlement for its members.

According to the draft, SRO-FT will play a critical role in ensuring compliance with statutory and regulatory frameworks, adhering to industry standards and best practices, and facilitating transparent communication channels with the Reserve Bank.

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Reserve Bank of India (RBI)